Required A1 Required A2 Required B Prepare schedules computing inventory budgets by months for production in units for February, March, and April. Lane Products Production Schedule Budget (Units) For February, March, and April Budgeted production Total needs Budgeted production - Units Required A1 February 0 0 March 0 0 Required A2 > April 0 0
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Lane Products manufactures a popular kitchen utensil. The company recently expanded, and the controller believes that it will need to borrow cash to continue operations. It opened negotiations with the local bank for a one-month loan of $40,000 starting March 1. The bank would charge interest at the rate of 0.5 percent per month and require the company to repay interest and principal on March 31. In considering the loan, the bank requested a
The following information is available:
- The company budgeted sales at 12,000 units per month in February, April, and May and at 9,000 units in March. The selling price is $60 per unit.
- The company offers a 2 percent discount for cash sales. The company's experience is that
bad debts average 1 percent of credit sales. - The inventory of finished goods on February 1 was 2,400 units. The desired finished goods inventory at the end of each month equals 25 percent of sales anticipated for the following month. There is no work in process.
- The inventory of raw materials on February 1 was 2,280 pounds. At the end of each month, the raw materials inventory equals no less than 20 percent of production requirements for the following month. The company purchases materials in quantities of 250 pounds per shipment.
- Selling expenses are 6 percent of gross sales. Administrative expenses, which include depreciation of $750 per month on office furniture and fixtures, total $68,400 per month.
- The manufacturing budget for the utensil, based on normal production of 10,000 units per month, follows.
| Materials (½ pound per utensil, 5,000 pounds, $30 per pound) | $ 150,000 |
|---|---|
| Labor | 120,000 |
| Variable overhead | 60,000 |
| Fixed overhead (includes depreciation of $20,000) | 120,000 |
| Total | $ 450,000 |
Required:
a-1. Prepare schedules computing inventory budgets by months for production in units for February, March, and April.
a-2. Prepare schedules computing inventory budgets by months for raw materials purchases in pounds for February and March.
b. Prepare a projected income statement for March. Cost of goods sold should equal the variable
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